CalAmp

The only GPS satellite on public display is at the San Diego Aerospace Museum. (Photo credit: Wikipedia)

CAMP :

NASDAQ : US$14.38 BUY 
Target: US$20.00

COMPANY DESCRIPTION:
CalAmp supplies tightly integrated M2M hardware with its COLT M2M Application Enablement Platform (AEP) cloud to add cellular and GPS connectivity solutions into several M2M verticals including: fleet management, asset/trailer tracking, vehicle finance/recovery/remote start, rail, and smart energy. In its legacy business, CalAmp supplies outdoor reception/amplification and indoor network products for DBS satellite TV applications

STRONG RESULTS AND GUIDANCE; DRIVERS INTACT FOR STRONG LONG-TERM GROWTH
Investment recommendation:

CalAmp delivered strong results in its first quarter post the Wireless Matrix acquisition with Q1/F2014 pro forma EPS of $0.16 above our $0.13 estimate. We believe the Wireless Matrix acquisition combined with the strong pipeline for CalAmp’s higher-margin Wireless DataCom business position CalAmp to grow faster than our 16% M2M hardware market revenue CAGR forecast. In fact, we believe CalAmp’s Wireless Datacom business is well positioned to drive re-accelerating 2H/F2014 and F2015 sales and earnings growth driven by new usage-based auto insurance contracts ramping in 2H/F2014, stronger PTC sales versus 1H/F2014, ramping sales from new deals with Caterpillar starting in Q1/F2015 and Pepco Holdings in 2H/F2014, and anticipated steady growth of higher-margin Wireless Matrix sales. We maintain our BUY rating but increase our price target to $20 based on our increased confidence in longer-term growth drivers.
CalAmp remains a top small cap pick.
Investment highlights
 CalAmp’s higher-margin Wireless DataCom division’s Q1/F2014 sales of $40.9M grew an impressive 29% year-over-year including a partial quarter of Wireless Matrix sales. Satellite division sales of $12.9M improved sequentially from $11.1M with the division’s gross margin of 19.6% well above our 16% estimate due to strong ongoing execution and a favorable mix.
 CalAmp’s Q2/F2014 guidance for sales of $55M at the mid-point was above our $53.5M estimate, while pro-forma EPS guidance of  $0.14-$0.18 was basically in-line with our $0.17 estimate. Given the  strong Q1/F2014 results, strong backlog, and our belief multiple strong long-term growth drivers remain intact, we increase our F2014 pro-forma EPS estimate from $0.77 to $0.78 and F2015 from
$1.00 to $1.02.
Valuation

: Our $20 price target is based on shares trading at roughly 20x our F2015 pro forma EPS estimate

Related articles

• CalAmp May Newsletter (huttoncommunications.wordpress.com)
• CalAmp Reports Fiscal 2014 First Quarter Results (virtual-strategy.com)

Bellatrix Exploration Ltd

BXE : TSX : C$6.18
BXE : NYSE
BUY 
Target: C$9.50

COMPANY DESCRIPTION:
Bellatrix Exploration is an intermediate sized exploration and production company with operations in Western Canada primarily focused on multi-zone opportunities in west central Alberta.
All amounts in C$ unless otherwise noted.

Investment recommendation

We have updated our estimates and target price following the announced closing of its $122 million gross JV transaction with Grafton Energy Co I Ltd. After fully reviewing the transaction, we estimate it was  over $0.60 per share accretive to Bellatrix, higher than our original ~$0.40 take, which is in line with the market reaction on Thursday. We are maintaining our BUY rating, but increasing our target to C$9.50/share (from C$9.00), reflecting the forecast incremental value associated with the transaction. Our target is based on an unchanged
0.9x multiple to NAV and reflects a 6.8x 2013E EV/DACF multiple. We continue to favor BXE as our top intermediate stock given its attractive
valuation, significant resource opportunity set, and superior operational and technical focus.
Investment highlights
JV is over $0.60/share accretive on our estimates. This reflects a nine well development plan in 2013 with 20 wells in 2014, weighted 2/3
towards Spirit River opportunities. We expect project payout to occur in ~2016, and anticipate Grafton will convert to a 17.5% GORR, thus
eliminating its exposure to future abandonment obligations.
Two remaining JV options provide additional ~$1/share potential value.
Further acceleration of its large undeveloped well inventory (>1,000 drilling locations in its two core target formations) is key to further
revaluation of the stock. The two remaining JV options in the deal could potentially bring in an incremental $150 million. Assuming similar
accretion, this has the potential to increase our valuation by a further ~$1.00/share.
Valuation
Bellatrix trades at a 0.6x multiple to CNAV, a 4.9x EV/DACF multiple,and $38,700 per BOEPD based on our 2013 estimates, compared to peer
group averages of 0.8x NAV, 7.6x EV/DACF, and $67,800/BOEPD.

Related articles

• Bellatrix announces the closing of a $122 million joint venture in the Notikewin/Falher in the Willesden Green area and in the Cardium in the Brazeau area (prnewswire.com)
• Korean joint venture a bust, says Bellatrix (calgaryherald.com)

Trading Alert

Full Alert (film) (Photo credit: Wikipedia)

Baltic Dry Index – rise above 1000 may signal an upturn in the sector

 

News from Diana Shipping: – indicates the Company is looking forward and sees a brighter future.

Diana Shipping containers however is a story of unsustainable dividends.

 

Symbol	Last	Chg
CPLP	9.25	+0.10
DRYS	1.73	0.00
DSX	9.80	+0.17
FRO	1.80	0.00
STNG	8.96	+0.119
NMA	13.33	+0.16
DHT	4.40	+0.05
TNK	2.57	+0.06
NAT	7.19	+0.005
TNP	4.58	+0.12

Related articles

• Baltic Dry Index: better but hardly enough (shippingtribune.com)

Intuitive Surgical Robot Surgery

A laparoscopic robotic surgery machine. Patient-side cart of the da Vinci surgical system. Into the sealed Computer God Robot Operating Cabinet, as a Frankenstein slave, at night. Da Vinci Surgical System. (Photo credit: Wikipedia)

ISRG : NASDAQ : US$501.70
BUY 
Target: US$527.00

COMPANY DESCRIPTION:
Intuitive Surgical manufacturers the da Vinci robotic system that is used in a wide range of surgical procedures, including prostatectomies, hysterectomies, and nephrotomies, as well as mitral valve repair, among others. da Vinci provides 3D magnification of the surgical field and enables more precise movement and positioning of surgical tools. The company also sells EndoWrist instruments to use with da Vinci

ISRG was issued a Form 483 by FDA following inspections of its Sunnyvale, CA facility from April 1 to May 30. The Form 483, dated May 30 and posted to FDA’s website Tuesday, notes four observations in connection with ISRG’s reporting and documentation practices.
We believe the objections listed on the Form 483 are primarily administrative in nature, do not reflect any safety concerns with the da Vinci surgical system, and will not likely pose any material impact to the business.
Investment highlights
 Observation #1 – four field actions between 2011-13 without notifying FDA – had been reclassified by FDA from Class III (non-reportable) to
II. All four have been confirmed by FDA as completed and closed.
 The second one cited five non-device-related Medical Device Reports that were previously reported to FDA, but not listed in the field action
report. This omission has already been corrected.
 The third observation notes ISRG did not document the decision to add a thyroidectomy indication through a Letter-to-File vs. a new 510(k) application. ISRG has implemented a written general procedure, and added detailed written instructions for this process.
 In the fourth, FDA observed that design documents did not list intrasurgical cleaning as a user need. ISRG revised its documentation to
cite this user need.
 In sum, each observation has been reported as corrected, but must be verified by FDA.
 We maintain our BUY rating and $527 target (1.5x PEG, i.e., 25.4x P/E, on our ’14 EPS estimate of $20.62).

Related articles

• Intuitive Surgical, Inc. (ISRG), Google Inc (GOOG): The S&P 500′s Highest Priced Stocks (insidermonkey.com)
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Cytokinetics

Nederlands: Patient with Myasthenia Gravis in an article of Posey & Spiller. (Photo credit: Wikipedia)

CYTK : NASDAQ : US$12.05
BUY 
Target: US$22.00

COMPANY DESCRIPTION:
Cytokinetics is a development-stage biotechnology company focused on drugs that impact muscle biology and function. The company has five drug candidates currently in human clinical trials, including lead drug omecamtiv mecarbil for heart failure (partnered with Amgen), and CK-2071357, which may be developed for diseases or conditions associated with muscle weakness or wasting such as ALS and myasthenia gravis.

Investment recommendation
BUY; $4 target on potential of CK357 in ALS and AMGN-partnered omecamtiv in heart failure. We think CK357 (tirasemtiv) Phase 1/2 proof-of-concept data in ALS shows unique (if early) efficacy potential. Ph2 data due Q4/13 could be a key catalyst. We also think recent developments point to the early Sept. Ph2 ATOMIC data being positive, which could also be a strong catalyst. Our $22 price target is based on a pNPV analysis.
Investment highlights
 Astellas deal provides more validation for CYTK’s platform. We have long considered CYTK’s muscle activation platform promising, and view Astellas’s investment as supportive.
 Deal terms include a$14M upfront payment and potential reimbursement of up to $24M for R&D in the next two years. We like that CYTK retains exclusive rights to tirasemtiv and maintains CK-107 US co-promote options. We are also pleased that CYTK maintains development and co-promote options to neuromuscular indications, as we think this is a promising strategic direction for the company. We also think the R&D allowance/upfront will help defray part of CYTK R&D.
 New Collab likely to generate more troponin activators; but deal is heavily weighted on CK-107. Of the $250M potential R&D/launch milestone payments, $107M is carved out for CK-107. CYTK may receive up to $200M for pre-specified sales targets for products coming out of this collaboration

Related articles

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Allergan

Image via CrunchBase

AGN : NYSE : US$81.99
HOLD 
Target: US$98.00

COMPANY DESCRIPTION:
Allergan is a global health care company focused on the development and commercialization of pharmaceuticals, over-the-counter (OTC) products, and medical devices addressing obesity intervention and various aesthetic applications. Allergan is headquartered in Irvine,

With Mondays 12% RESTASIS driven sell-off, AGN shares are down 29% from mid-April year highs on the back of three disappointments that have also hit sentiment including (1) the LEVADEX complete response letter; (2) the DARPin set-back; and now (3) the RESTASIS draft FDA guidance that drove several recent downgrades. While our initial reaction is to go the other way and upgrade AGN as a RESTASIS generic now feels fully priced in and the stock is at trough valuation levels, we still lack catalysts needed for a sustained reversal. For now, we keep our HOLD rating and lower our target but we like the
risk/reward here.
 Potential generic timing is difficult to determine but will remain an overhang. We believe there are several generics pursuing RESTASIS but timing tough to call and we don’t see a RESTASIS X opportunity until at least 2017. We’ve factored in generics in 2015 and beyond with EPS impact of 15% to 17% based on initial assumptions.
 We think the stock has now fully priced in a generic RESTASIS. If we apply our new 2015 EPS of $4.98 to a trough 17x multiple (over the last 3-years versus a 19.7x average), we get an $85 stock price which is not far from the low $80’s closing. We think current valuation sets a floor from here.
 We’re taking a more conservative view on RESTASIS impact – lowering price target to $98. We have removed just over $1 annually from EPS beginning in 2015-2017 with our new EPS now $4.98, $5.70 and $6.45. Importantly, we think management has cost flexibility that can be used to blunt the EPS hit which we haven’t factored in. Our 12-month price target is based on P/E and EV/EBITDA but also implies that AGN can trade back to its historical 19.7x P/E level on re-based numbers that reflect a generic hit to RESTASIS in 2015.

Related articles

• Allergan, Inc. Announces Appointment of Douglas S. Ingram as President (talent4boards.com)
• Can Allergan Bounce Again? (247wallst.com)

Mitel Networks

English: TeleCollaboration session using Mitel SIP software and off the shelf HD video and audio components. (Photo credit: Wikipedia)

MITL : NASDAQ : US$3.91
BUY 
Target: US$5.00

COMPANY DESCRIPTION:
Mitel is a premier provider of IP telephony infrastructure, principally to small and mid-size organizations characterized by 1,000 or fewer lines. Products include IP-PBX systems, desktop hardware, UCC applications and managed services. Based in Ottawa, Canada, Mitel employs ~2,400 individuals and has 1,600 channel partners across 90 countries.

Investment recommendation
We reiterate our BUY rating and $5.00 price target following above consensus Apr Q results and soft guidance. We believe prairieFyre’s core
contact center solution will help drive top line growth driven by opportunities for Mitel to up sell other PBX and UC applications across their customer base. We continue to view MITL as well positioned in leading virtualized UC applications, with upside potential to our estimates from continued gross margin expansion driven by expanding software sales.
Investment highlights
 MITL reported Q1/C13 (Apr). Revenue was $150.9 million compared to our inline estimate of $146 million and EPS was $0.25, compared to our inline estimate of $0.24.
 Management guided Q2/C13 (Jul) to revenue of $140-$145M, and implied EPS at the mid-point of $0.15. This compared to consensus estimates of $146M/$0.21 and our estimate of $144M/$0.20.
 Mitel acquired prairieFyre, a contact center software provider for $20 million in cash. prairieFyre provides Mitel’s existing contact center solutions and Mitel expects the acquisition to be accretive in the first year. The contact center market is expected be a $3 billion TAM and is growing in the mid-teens.
Valuation
MITL’s price target of $5.00 is 5x our C2014 EPS estimate of $1.01.

Related articles

• Mitel Buys Contact Center OEM prairieFyre Software (thevarguy.com)
• Mitel Taps Former LifeSize Exec for Channel Chief Slot (thevarguy.com)

DexCom

Fda (Photo credit: Wikipedia)

DXCM : NASDAQ : US$20.94
BUY 
Target: US$25.00

COMPANY DESCRIPTION:
DexCom is a medical device firm focused on pioneering technologies for the continuous monitoring of glucose levels in people with diabetes. The company has received FDA approval for its short-term continuous glucose monitoring system (CGMS), the DexCom STS system, and in June 2007 gained approval for its second-generation STS Seven system.
All amounts in US$ unless otherwise noted.

Investment recommendation

We reiterate our BUY rating. We believe commercialization of the G4 Platinum sensor is progressing better than expected, driving new patient
addition growth beyond initial expectations. Furthermore, we believe the upcoming catalysts of label expansion to include pediatrics as well as
the Sensor Augmented Pump product with Animas in the US provide DexCom with growth accelerators. We have adjusted our model to
include our updated thoughts and expected FDA clearances.
Investment highlights
 G4 Platinum commercialization represents a Sea-Change for DexCom as both new and existing physicians embrace DexCom’s
CGM.
 Pediatric labelling could add $30-40M to revenues starting Q4/13 as that segment of the patient population is served.
 The Animas/DexCom CGM Sensor Augmented Pump (SAP) adds another growth accelerator. The SAP is expected Q4/13.
Valuation
We are raising our price target to $25.00 from $19.00. We base our valuation on an 8.9x EV/sales multiple applied to our 2014E revenue
estimate of $190.3M. Our price target assumes cash of $46.3M, $7.0M in debt and shares outstanding of 69.8M.

Related articles

• DexCom Announces Upcoming Presentations (fool.com)
• DexCom, Inc. (DXCM), Jamba, Inc. (JMBA), Restoration Hardware Holdings Inc (RH): 3 Stocks Near 52-Week Highs Worth Selling (insidermonkey.com)

Halogen Software Inc.

Image via CrunchBase

HGN : TSX : C$14.75
BUY 
Target: C$19.00

COMPANY DESCRIPTION:
Halogen Software is a provider of Software-as-a-Service Human Resources and Talent Management tools for small and medium sized companies. The company’s tools simplify performance appraisal, recruitment, compensation management, succession planning and more. Halogen Software is headquartered in Ottawa Canada with ~300 employees

Investment recommendation

We are initiating coverage of Halogen Software with a BUY rating and a C$19.00 target price. We believe that Halogen is very well positioned to benefit from an accelerating shift in the middle market towards Talent Management software tool adoption. We expect Halogen to deliver predictable, consistent 20%+ SaaS revenue growth for several years to come given its strong products, loyal customer base and exposure to a large and untapped market. Investment highlights
 We believe the Talent Management (TM) software market is very large and untapped. Gartner pegs it at $3.3 billion in 2013. Halogen estimates its midmarket TAM at $6 billion in NA and $15 billion globally. We believe the midmarket is a “land grab” with <10% penetration. With the market rapidly legitimizing, we expect accelerating adoption and increased pricing power.
 Simply said, Halogen’s happy customer base ranks it at the very pinnacle of customer satisfaction. For investors, this means low churn and a strong platform for annual price increases within the 1,750+ customer base.
 Halogen services are offered primarily on a recurring annual subscription. 90%+ renewal with cash upfront drives predictable revenue while prenegotiated price bumps, seat growth and upsell drive 100%+ dollar renewal.
 While we do not expect EBITDA profitability within our forecast horizon given upfront customer acquisition cost, we believe the investment to
capture share of long lived and individually profitable contracts is prudent.
Valuation
We believe Halogen’s premium valuation is warranted. Our C$19.00 target is based on 6x 2014E EV/Sales supported by comps and DCF. Halogen’s current valuation of 4.4x 2014E EV/Sales lags larger HCM SaaS vendors at 8.7x, and a deserved premium to sub $1B SaaS vendors at 3.8x given HCM focus and higher
growth. We believe Halogen could also be bought as its services are highly sought
after. Recent SaaS HCM consolidation has driven prices over 6x EV/Sales.

Related articles

• Halogen Software soars in TSX debut (business.financialpost.com)

Nike

Nike Foundation Uniform Project (Photo credit: The Advocacy Project)

NKE : NYSE : US$60.57
HOLD 
Target: US$57.00

COMPANY DESCRIPTION:
Nike, Inc. designs, develops and markets footwear, apparel, equipment and accessories for men, women and children worldwide. NKE focuses on sports-inspired apparel, footwear and accessories. NKE was founded in 1964 & headquartered in Beaverton, Oregon

Investment recommendation
We see limited upside to FQ4 results when NKE reports results on June 27 AMC and as such are comfortable with our 73c EPS estimate vs.
consensus at 75c. On the positive, basketball continues to be a key growth driver, while running, after having decelerated, is showing improvement; however, higher price points (e.g. $160 Flyknit) seem to be pressing the limits of consumer demand. That said, growth in
running is being helped by the increased distribution in run specialty stores as opposed to the mall. Gross margin is in much better control,
particularly as some of the drags begin to anniversary (NFL, technology R&D, Converse going direct); however, spiking labor costs and FX
remain headwinds.

Separately, we are estimating global futures orders +10%. That said, we believe much of this is built into the stock that now trades at a 40% premium to the S&P 500 relative to a 20% premium historically. Lastly, recall Q4 inherited ~5c of costs that were deferred from Q3. As such, we maintain our HOLD rating.

Investment highlights
 Our 10% global futures estimate (7% unit growth and 3% pricing), embeds solid growth expectations from North America (+14%) while Europe likely continues to stagnate (-3%). China faces the easiest comparisons of this year, driving our +19% orders; however, slowing demand is a new risk that bears monitoring.
 We expect Q4 gross margin to be up 60bps with limited upside as pricing should offset raw materials, geographic mix, discounting and NFL while FX and labor increases remain as pressures.

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